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ICAS report on IAS 37 and decommissioning liabilities

Dec 10, 2020

The Institute of Chartered Accountants of Scotland (ICAS) released a report examining the application of IAS 37, "Provisions, Contingent Liabilities and Contingent Assets" in accounting for the costs of decommissioning and clean-up operations in polluting industries, including oil and gas, mining and utilities.

IAS 37 mandates that the future cost of clean-up be estimated and accounted for using an appropriate discount rate to calculate the present value of these costs. However, the standard does not mandate for businesses to disclose the rate they have used, nor makes clear whether the basis for calculating the discount rate should be an accounting choice.

The ICAS research used a large international sample across the mining, utilities, and oil and gas sectors, and found substantial variations exist in companies’ choice to disclose the discount rate when accounting for decommissioning and environmental liabilities. Furthermore, the research notes that when a company with a decommissioning liability becomes insolvent the clean-up liability remains attached to the asset, which may therefore become less attractive to a potential buyer, and so, if eventually the asset remains unsold, the taxpayer ends up picking up the decommissioning tab. ICAS points out that this scenario is likely to be more frequent in a post-COVID world.

The report arrives at two recommendations:

  • Standard setters should require disclosing the discount rates applied to facilitate comparability and thus allow for users of financial statements and other key stakeholders to see inside the ‘black box’ of accounting for decommissioning liabilities; and
  • Preparers should include, and auditors demand, enhanced disclosures, to include not only the discount rate but also undiscounted future estimated cash flows and timing of decommissioning activities, augmented by a comprehensive narrative on the major uncertainties surrounding these items.

Review the report Black Box Accounting: Discounting and disclosure practices of decommissioning liabilities on the ICAS website.


IASB publishes request for information on the post-implementation review of IFRS 10, IFRS 11 and IFRS 12

Dec 09, 2020

On December 9, 2020, the International Accounting Standards Board (IASB) issued a request for information (RFI) seeking comments from stakeholders to identify whether IFRS 10, "Consolidated Financial Statements", IFRS 11, "Joint Arrangements", and IFRS 12, "Disclosure of Interests in Other Entities" provide information that is useful to users of financial statements; whether there are requirements that are difficult to implement and may prevent the consistent implementation of the standards; and whether unexpected costs have arisen in connection with applying or enforcing the standards. Comments are requested by May 10, 2021.

The post-implementation review process for IFRS 10, IFRS 11, and IFRS 12 was officially added to the IASB's agenda in September 2019. The IASB has been gathering information to determine the scope of the review and to identify the main questions that need to be answered before the implementation of IFRS 10, IFRS 11, and IFRS 12 can be assessed.

The information gathered so far indicates that many stakeholders believe that the standards work, however, IASB stakeholders have also indicated that there are areas where the standards to their mind might still benefit from improvements. Based on this feedback, the Board agreed the following matters be examined further in the RFI:

IFRS 10 Consolidated Financial Statements provides a single consolidation model that identifies control as the basis for consolidation for all types of entities. The following areas might warrant further investigation:

  • power over an investee, including relevant activities, rights that give an investor power over an investee and control without a majority of voting rights;
  • the link between power and returns, including principal and agent and non-contractual agency relationships;
  • investment entities, including criteria for identifying an investment entity and subsidiaries that are investment entities; and
  • accounting requirements for
    • transactions that give rise to a change in ownership; and
    • the partial acquisition of a subsidiary that does not constitute a business.

IFRS 11 Joint Arrangements establishes a principle-based approach for the accounting for joint arrangements, in which the parties recognize their rights and obligations arising from the arrangements. The following areas might warrant further investigation:

  • collaborative arrangements outside the scope of IFRS 11;
  • classification of joint arrangements; and
  • accounting requirements for joint operations.

IFRS 12 Disclosure of Interests in Other Entities combines, enhances and replaces the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities. There were relatively few comments on IFRS 12 requirements and feedback was mixed. Therefore, the RFI aims to establish to what extent the requirements assist an entity to meet the objective of the standard.

After the comment period ends, the IASB will consider the comments received along with information gathered through other consultation activities. The final conclusions of the IASB will be presented in a report and a feedback statement which will also set out the steps the IASB believes should be taken as a result of the review. The Board could decide to add a standard-setting project to its agenda, consider one or more matters further as part of its research programme, or both. The Board could also decide to take no action.

Review the press release and request for information on the IASB's website.

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AcSB Exposure Draft – Lease Liability in a Sale and Leaseback

Dec 09, 2020

On December 9, 2020, the Accounting Standards Board (AcSB) issued its Exposure Draft that corresponds to the IASB’s Exposure Draft on this topic. Comments are requested by March 29, 2021.

The AcSB would like input from Canadian respondents on the following additional question regarding the proposed amendments:

  • The IASB has developed the proposed amendments in accordance with its due process for application around the world. Assuming the Exposure Draft proposals are finalized and approved by the IASB in accordance with its due process, do you think that the proposals are appropriate for application in Canada? If not, please specify which aspects of the proposals, and what circumstances, make the accounting requirements proposed in the Exposure Draft inappropriate.

Review the press release and exposure draft on the AcSB's website.


IASB Vice-Chair speaks at annual AICPA conference

Dec 08, 2020

On December 8, 2020, the International Accounting Standards Board (IASB) released a speech by IASB Vice-Chair Sue Llyod given at the 2020 AICPA Conference on Current SEC and PCAOB Developments, held by remote participation. In her speech, Ms. Llyod spoke about the IASB's reaction to COVID-19 challenges and other important Board developments in 2020. She also noted developments to be expected next year and developments in sustainability reporting.

On COVID-19, Ms. Lloyd noted that the IASB's approach to dealing with the effects of the pandemic was similar to the FASB’s approach. The IASB published educational material to explain how to apply the existing requirements in IFRSs in the context of COVID-19 and issued one small amendment to IFRS 16. The IASB also reconfigured its work plan to allow for the extra demands that have been put on the stakeholders.

Regarding other important Board developments in 2020, Ms. Lloyd pointed out that the IASB finalized amendments to IFRS 17, completed important changes to several standards in response to the IBOR reform, and launched two important consultations — on primary financial statements and on goodwill and impairment.

As an example of important developments to be expected next year, Ms. Llyod noted the agenda consultation the IASB will launch in early 2021. She especially encouraged responding to the consultation as this is an important opportunity for the stakeholders to tell the IASB which standard-setting projects they think are important for the IASB to consider and how the IASB should prioritize its work.

Lastly, Ms. Lloyd discussed developments in sustainability reporting and pointed at the Trustees' consultation paper published to assess demand for global sustainability standards and, if demand is strong, to assess whether and to what extent the IFRS Foundation might contribute to the development of such standards.

Review the full speech on the IASB's website.

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CAQ Issues Year-in-Review Report on Critical Audit Matters

Dec 03, 2020

On December 3, 2020, the Cen­ter for Au­dit Qual­ity (CAQ) has re­leased a new re­port “Critical Audit Matters — A Year in Review”. The publication provides observations from the CAQ’s analysis of the CAMs communicated in the auditor’s reports for companies broadly, as well as a deeper dive into the S&P 100, which comprises 100 public companies across multiple industry groups.

The new report provides data and analysis on the first year (2019) that critical audit matters (CAMs) were included in auditor reports. Consistent with the requirements of the Public Company Accounting Oversight Board (PCAOB), the CAQ report finds that CAMs for S&P 100 companies frequently focused on some of the most complex accounting issues that require a high degree of judgement by the auditor.

The report notes (i) every auditor report for S&P 100 companies contained at least one CAM; and (ii) the 100 auditor reports included a total of 198 CAMs for an average of just under two (1.98) CAMs per report; and (iii) there was a single auditor report that communicated five CAMs, while 32 auditor reports communicated only one CAM.

Four common categories of CAMs emerged in S&P 100 auditor reports: taxes (16% of CAMs), goodwill and/or intangibles (14% of CAMs), other contingent liabilities (12% of CAMs), and revenue (9% of CAMs).

For fur­ther de­tails, re­fer to the press re­lease and the Re­port on the CAQ's web­site.

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PCAOB COVID-19 spotlight: Insights and reminders for auditors

Dec 02, 2020

On December 2, 2020, the Public Company Accounting Oversight Board (PCAOB) released a new Spotlight publication, "Staff Observations and Reminders during the COVID-19 Pandemic", to provide insights from recent PCAOB inspections of reviews of interim financial information and audits.

This new publication builds on information provided in the PCAOB’s April 2020 Spotlight, COVID-19: Reminders for Audits Nearing Completion. Despite the ongoing challenges created by the pandemic, auditors remain responsible for conducting audits in accordance with PCAOB standards and rules, as well as other regulatory and professional standards. Although the staff observations in this publication relate to audits of public companies, many of the reminders, even where the term “public company” is used, may also be applicable to audits of broker-dealers.

Review the press release and publication on the PCAOB's website.

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Fall 2020 Standard-setting Update – Prioritizing, supporting, and maintaining community during COVID-19

Dec 02, 2020

On December 2, 2020, the Accounting Standards Board (AcSB) announced that they are reprioritizing work to adapt to the new environment.

The AcSB continue to create helpful resources and have even launched a new online community platform to further pivot their operations to the digital environment.

Review the press release on the AcSB's website.

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Nasdaq to advance diversity through new proposed listing requirements

Dec 01, 2020

On December 1, 2020, the Nasdaq filed a proposal with the Securities and Exchange Commission (SEC) to adopt new listing rules related to board diversity and disclosure.

If approved by the SEC, the new listing rules would require all companies listed on Nasdaq’s U.S. exchange to publicly disclose consistent, transparent diversity statistics regarding their board of directors. Additionally, the rules would require most Nasdaq-listed companies to have, or explain why they do not have, at least two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority1 or LGBTQ+. Foreign companies and smaller reporting companies would have additional flexibility in satisfying this requirement with two female directors.

Review the press releaseFAQ and summary of what listed companies need to know about the rule proposal on Nasdaq's website.


IASB publishes discussion paper on business combinations under common control

Nov 30, 2020

On November 30, 2020, the International Accounting Standards Board (IASB) published a discussion paper DP/2020/2 "Business Combinations under Common Control". The IASB reactivated this topic as a research project in 2012 after the original research project was postponed in 2009 for the time being due to the financial crisis at that time. Comments are requested by September 1, 2021.



Business combinations under common control are excluded from the application of the current IFRS requirements for business combinations. Under IFRS standards, there are requirements for the parent consolidated financial statements and for the selling entity, but no rules for the acquiring entity. As a result, the preparers of the financial statements of the acquiring entity must develop an accounting policy to account for such transactions. There are accounting policy choices - both in choosing the method and in presenting the comparative information for the previous period.

In practice, the need to develop a suitable accounting method can lead to different presentations of comparable facts and circumstances. Especially since such transactions often occur during restructuring or the creation of new entities - possibly also for an IPO. For these reasons, the IASB has been pursuing a research project for a long time, which was suspended for a time, but which, after intensive consideration, has now culminated in a discussion paper, which, in terms of process, precedes the development of an exposure draft.


Summary of preliminary views

Scope. The proposed requirements would apply to all transactions under common control. There would therefore no longer be any differentiation as to whether or not these transactions have economic substance, i.e. whether they constitute pure capital reorganizations or not.

Accounting method dependent on the existence of non-controlling interests. Following its analysis, the Board came to the preliminary conclusion that not one single method for all transactions is in the best interests of all stakeholders. The objective criterion for determining when a transaction should be accounted for using the acquisition method is the existence of a non-controlling interest in the acquiring entity, or at higher levels in the case of sub-groups. Consequently, the book-value method should be applied to all acquiring entities in which there are no non-controlling interests. The only exception is for acquirers whose shares are not traded on a public market, provided that all non-controlling shareholders have been informed of and have not objected to the proposed use of the book-value method. If all non-controlling interests are held by related parties within the scope of IAS 24, application of the book-value method is mandatory.

Application of the acquisition method. Where the acquisition method is to be applied, it must be applied in accordance with IFRS 3. However, if the consideration given is less than the fair value of the assets and liabilities received, this amount is not recognized in profit or loss but in equity.

Application of the book-value method. The IASB proposes to apply the IFRS carrying amounts of the transferred entity prospectively, i.e. from the date of acquisition. The consideration in the form of assets is to be determined at the carrying amounts of the acquiring entity, liabilities incurred are to be determined using the standards applicable to initial measurement. Any difference between the carrying amounts of the assets and liabilities received and the consideration given should be recognized in equity. Transaction costs should be recognized in profit or loss in the period in which they are incurred. The only exception to this are costs for the issuance of additional equity or debt instruments, which must be recognized in accordance with the provisions of IAS 32.

Disclosures. When applying the acquisition method, the disclosure requirements resulting from IFRS 3 should be disclosed, taking into account the improvements proposed in discussion paper DP/2020/1 Business Combinations - Disclosures, Goodwill and Impairment. However, there are additional requirements with regard to IAS 24 that intended to assist preparers. For acquisitions that must be accounted for using the book-value method, adjusted reporting obligations are proposed based on the disclosures required by IFRS 3. This should enable users to assess the nature, financial impact and benefits of the acquisition. However, it is explicitly not required to disclose financial information for periods prior to the acquisition date. Similarly, no fair value of the consideration given is to be disclosed or additionally determined. However, the amount recognized in equity as the difference between the carrying amounts of the assets and liabilities received and the consideration given should be disclosed.

The deadline for comments on the discussion paper is September 1, 2021.


Additional information


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IIRC report on the use of non-financial information by investors and analysts

Nov 30, 2020

On November 30, 2020, the International Integrated Reporting Council (IIRC), in cooperation with Kirchhoff Consult AG, has released a report investigating the extent to which investors and analysts value non-financial information, the ways they use it and the benefits they see from integrated reporting.

Please click to access the publication through the press release on the IIRC website.

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